You Can Get Some Big Things Done When It’s Not All About You

There was a lunch held last week in New York to celebrate one of the most important American business leaders of the past half-century. It started off conventionally enough: the host and four prominent speakers recounted the deeds and impact of the honoree, at some length.

When they had finished, the great man himself, who had been sitting at a table in the audience eating a peanut butter and jelly sandwich, walked to the front of the room. After a few jokes and preliminary remarks, he spent the next ten minutes detailing the accomplishments, in particular the writings, of the people who had just praised him, with specific reading recommendations (the ones I remember are Alan Blinder’s After the Music Stopped, James Grant’s Mr. Speaker!, andCliff Asness’s “My Top 10 Peeves” in the next issue of the Financial Analysts Journal). Then 84-year-old Jack Bogle walked back to his chair and sat down.

I’d never seen anything quite like that before. Bogle had taken an event that was by definition all about him and found a way to make it about other people. Then again, that’s sort of what Bogle’s been doing since 1974, when he took a crisis that was all about him — he’d been fired by his business partners — and somewhat inadvertently turned it into something that was about defending the interests of retail investors everywhere.

There are surely lessons in this for all of us, although most seem too obvious and sappy to expand much on. So I’ll stick with Bogle. The thing he created in 1974 was Vanguard, now the world’s third-biggest manager of other people’s money, with more than $2.2 trillion in assets — a figure doesn’t even begin to get at Vanguard’s significance. Unlike the two organizations that surpass it in size, BlackRock and Allianz, it has grown not through acquisitions but entirely organically. It has done this by popularizing one of the two or three really important financial innovations of the past 50 years, the index fund. Its success has come not from promising its customers grandiose results or charging them lots of money, but by promising and delivering nothing but low, low fees. In the process Vanguard has transformed its industry, pressuring rivals to emulate its low-cost ways and changing the popular conversation about investing, possibly forever. And Vanguard is likely to be around for generations to come — as a customer-owned mutual organization, it doesn’t have shareholders who might be tempted to merge it out of existence. The Bogleheads, legions of individual investors who espouse the master’s low-cost, no-nonsense approach, will I hope be gathering and debating for generations to come as well.

In terms of lasting influence and impact, then, it’s hard to think of many other living business leaders (Sergey Brin and Larry Page? Jeff Bezos?) who can compare with Bogle. He certainly seems more important than anyone else in the financial realm. Warren Buffett is a great investor and a great guy, but how has he changed the investing business? What lasting legacy will he leave?

There is that $60 billion or so that Buffett has pledged to the Gates Foundation and a handful of family foundations. Bogle doesn’t have anything like that kind of money. He’s a wealthy enough guy by normal standards, having salted away big chunks of his paychecks over the years — in Vanguard funds. In comparison with his financial sector peers, though, he’s a pauper. But again, that’s part of the reason why Bogle has been so influential. It hasn’t been about him or his pocketbook.

This is especially rare in the financial sector, of course. In other fields, CEOs and company founders can credibly assert to be motivated mostly by things other than self-enrichment. In finance, that’s a pretty hard case to make. Bogle certainly didn’t start out committed to self-abnegation. In the early decades of his career he was a pretty conventional businessman, rising up the ranks of the mutual fund company Wellington Management and then, as its president, trying to keep it relevant during the go-go investing boom of the 1960s. Bogle pushed through the creation of the all-stock Windsor Fund (the Wellington Fund’s big selling point had been that it conservatively mixed stocks and bonds), then a merger with an aggressive upstart money management firm. That all worked okay for a few years, but during the bear market of the 1970s business turned ugly and Bogle’s new partners forced him out.

Only, because of a quirk of the mutual fund business, they couldn’t force him out entirely. The Wellington Fund and the Windsor Fund still had their own boards, which were separate from Wellington Management and elected by investors in the funds. These board members remained loyal to Bogle, and he turned to them to preserve some semblance of his job. They balked when he suggested taking over Wellington Management and throwing out his rivals, but agreed to his plan to form a new, customer-owned organization — Vanguard — that would handle “administration” of the funds while leaving their management and distribution in the hands of Wellington Management. In short order, Vanguard began selling shares in the funds directly via mail (which technically didn’t count as distribution) and launched a new, unmanaged index fund.

This was, as Bogle has since put it, “one of the most disingenuous acts of opportunism known to man.” He was mainly just out to keep his job. But in the process he redefined that job and changed the incentives he faced to make looking out for Vanguard’s customers his main responsibility. He remained a fierce competitor — last week he still couldn’t resist a dig at Ned Johnson, whose Fidelity was once Goliath to Vanguard’s David but is now substantially smaller — and has described himself as an at times tyrannical CEO. But he also became “Saint Jack,” the outspoken advocate for investors and critic of his industry’s greedy ways, a role he has expanded on since retiring as CEO in 1996. His activism has sometimes put him at odds with his Vanguard successors, but they’ve let him keep an office at Vanguard HQ where he has kept plugging away well into his 80s. He even has an article in next month’s Financial Analysts Journal alongside Asness’s. It’s about mutual fund fees.

I’ve talked to Bogle a few times over the years about how his mid-1970s career crisis freed him from the lucrative but limiting set of rules that governs the behavior of most modern business executives. Not being answerable to outside shareholders — but also no longer having any prospect of building a huge fortune of his own — liberated him to do what he thought really mattered. The results have been astounding.

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